Gucci’s rise and fall (and rise again) story recounted by those who lived through it.

Gucci’s rise and fall (and rise again) story recounted by those who lived through it.

The story at the heart of Gucci is extraordinary. There are a lot of rumors around.
It has got passions, it’s got family, it’s got feuding. It’s got loves and loathing and tragedy,
even murder. It’s better to cry in Rolls-Royce than to be happy on a bicycle.
That story is really the appeal and the excitement and yes, the sex factor of a brand like Gucci.
Sometimes things happen in life that change your life. This was really success beyond my wildest imagination.
I didn’t believe possible, Tom did not believe it was possible. The success was unbelievable.
It is difficult to understate just how successful the Gucci brand has been in history,
but also really is right now. We’re looking at a brand value of something like $15 billion
and that’s underpinned by an extraordinary social media following. So you both got this business value
and also you’ve got this dynamism in the digital world. That combination has really been the key
to Gucci’s success. There’s been an unfairness
to give a lot of credit to people who really didn’t deserve all that credit.
And instead people who had deserved credit were totally forgotten. Nobody has focused on the real story.
Everybody has focused on the fairy tale. That’s very good news for the viewers
and maybe also for the media but it’s not the reality.
There is an epic saying in Italy when it comes to family generations that the first generation creates,
the second generation expands, and the third generation destroys. And that’s almost what happened
in the Gucci story. You’ve got the founder who was Guccio Gucci
who had the vision for making quality leather goods and selling them initially to American tourists
and other European travelers. And then you have his two sons, Rodolfo and Aldo,
who ended up having each 50% of the company. And especially Aldo was really the marketer
and the expander, and he had a vision to take Gucci outside of Italy.
And then you have the third generation which is also where a lot of the conflicts started because you had Aldo’s three sons,
Roberto, Georgio, and Paolo, and they had 50% together with their father.
And then you have Maurizio on the other side, a single child who inherited 50% from his father Rodolfo.
The Gucci story was really punctuated by the family conflicts and they were extremely litigious.
So, all of these fights spilled out into open court and became extremely public.
One of the characters that really had the longest arc and almost the most knowledge about the story
was Domenico De Sole who started as a lawyer to Rodolfo in the early ’80s.
So, hi, Domenico. Hi. How are you? So what was it like working for Rodolfo and then dealing with Aldo
and the family? It was very complicated because that point what was happening
there was a big conflict in the family because Aldo’s children probably felt
that their dad had done such a phenomenal job, which is true. Aldo was a pretty formidable person
but they felt that they deserve more than the 1/4 of 50%. So we had a lot of battle that went on and on
for a long time. But then the situation was basically confirmed and there was no change in the shareholder ownership,
and Maurizio kept the 50%. And that was the situation but that created a lot of animosity,
there where a lot of battle. He dreams every five minutes. He doesn’t think, he dreams.
And in his own life, he’d still run as a child. Today, we do $138 million of business
with $18 million profit. This is the answer to a dream.
I accept. So major turning point in this family story
was 1983 Rodolfo is very ill and he dies,
and he leaves his 50% stake in the company to his only son Maurizio.
Maurizio is starting to get his ideas even back then about how he wants to clean up the Gucci brand
and take it up market, but he can’t get his uncle and his cousins on board. They’re very happy with all of the lucrative licensing deals
that are very profitable for them. So as Maurizio is becoming more and more convinced
of his vision for Gucci, and that he’s the one who needs to take it forward, on the home front he’s also falling out with his wife
Patrizia who had been pushing him to be the kind of Mr. Gucci and one of the leading luxury CEOs in Milan.
But he’s starting to feel a little bit pressed and in 1985, he decides to leave her.
We have this transformation. Mr. Jekyll became Dr. Hyde.
The same time you had Paolo ratting on his father, Aldo, to the US tax authorities
because he suspected his father of siphoning off profits and putting them into offshore accounts.
So, there was a case then started by the IRS, an investigation that ended up sending Aldo to jail.
I never forget. I remember we had a board meeting of Gucci America and Maurizio asked me, and said,
“You have to explain what this means.” And yes, I tried to explain to the members of family, this is the United States, it’s very serious.
On tax fraud is very serious, it’s not Italy. One member of the board said to me,
“You are pessimistic.” I said, “Oh, maybe. I don’t know what you want me to say.” Unfortunately, Aldo did go to jail
and at that point, again, it’s a big change in my life because I went from being the lawyer
for the company and the family. He asked me to run Gucci America and with a specific goal of settling with the IRS.
The reputation was still at a very good reputation. Most importantly worldwide name recognition
because Aldo, they’re awfully really geniuses. They open store in places like Japan
in Hong Kong, in Asia, you know the really amazing early on they were in all these markets.
But there was a problem, I think the product was really getting to be less attractive.
They also expanded distribution dramatically. So there were a lot of events that occur
that really the brand was deteriorating.
There are many lessons from luxury brand history about the balance between brand value and revenue growth
because frankly it can be easy to get overexcited about the possibility of revenue growth,
increased distribution, and of course, Gucci have had their own issues and challenges on losing control of the brand experience
in and out of their history. There have been times when they have over-expanded, they lost control of product quality
in their drive for international success. What is it that makes the brand valuable?
It will often be exclusivity. It’ll be the control of the customer experience that people can feel confident
about what they’re gonna get in product terms, what they’re gonna get in service terms, and also the authenticity that they’re going to get
is part of what they’re buying. And so therefore you need to make sure you are feeding that brand value
or what it is that makes the brand valuable in the first place.
So Maurizio had a problem because he had a clear vision for Gucci but he didn’t have the money to buy out his relatives.
The answer to his problem was an investment banker who worked for Morgan Stanley at the time
named Andrea Morante.
I can remember very vividly as if it were yesterday that when I explained to the other partners in the room
the Morgan Stanley room that I had met with Maurizio Gucci and that he wanted to do
some form of shareholding restructuring, I’ll never forget that for the first time
when I was describing a transaction everybody was interested. And that’s, if you will,
the first time that I understood the power of a brand.
So he launches this plan at a stealth campaign with Morgan Stanley to buy up the shares of Aldo and his cousins,
and bring in an investment bank, Investcorp as his financial partner.
‘Cause he didn’t have enough money to just buy it all himself. As far as the complexity of purchasing
the cousins and also the uncle, well, that complexity had one solution
which you could call today inside information. Because I spent a lot of time with Maurizio,
he gave me all the inside information of what everybody within the family,
really what the agenda was. And in particular, he also explained to me how
Paolo Gucci had been ill-treated by his father and given a significant reduced number of shares
vis-a-vis his brothers because Paolo had literally took his father to jail.
So what I did is I proposed to him to be paid a very similar amount of money
as if he had not been penalized by his father. I’ll pay you the same price
that your brothers are going to be receiving. He accepted.
So I actually went there with a suitcase of cash and purchased this initial 3% from Paolo Gucci
which actually changed the life of Gucci. [Interviewer] One person who worked for the company
said Paolo has been a traitor to everyone. Yes. Maybe.
Yes. Again, these bandits, I mean, if you leave them then you’re a traitor, right?
Once they saw that the game was over and there was somebody else coming to actually run the business,
then gradually one by one, they all sold their shares.
So what initially was almost a mission impossible turned into a reality.
50% of all the available shares were ultimately purchased by Investcorp,
and at that stage, Investcorp and Maurizio had the company.
So Maurizio emerges as the CEO, he had control because even though he was in a 50/50 agreement
with Investcorp, they gave him management control. His vision was to take Gucci back up market
and that meant quality products, beautiful workmanship. And he had a very classic idea
of what he wanted Gucci to be. He used to say he wanted to be round and brown
and soft to a woman’s hand. He opened this fabulous headquarters in Milan,
no expense spared, priceless antiques, workmanship. So the debt started racking up really, really fast
and at the same time he had cut out the most lucrative parts of the business. So, the Gucci accessories collection
which was the cash cow for the company. Things were done in a somewhat irrational way.
I think that he incurred massive costs in Italy which the company could not afford at the time.
He decided we had to clean an old new product. Okay, well, that’s a great idea but what is the cost of it?
So overnight he said, no more GG. So I said, “Well, Maurizio, GG is like 70% of the sales.”
But he wanted to do it all costs so the company really went to tailspin
and started really losing money, and was very, very difficult. Became very painful.
So, the situation became dire with Gucci’s finances. They were not able to pay salaries.
They were not able to pay suppliers. They were on the verge of having to take the company’s books
into court to say they couldn’t settle the accounts. And at that point, that means that the company has declared bankruptcy.
So, Gucci is really teetering on the brink at this stage. He had to right these things.
I think that the problem he couldn’t make it happen. There’s some people have great vision but he had the greatest vision, the great strategy
but if you execute he was beyond incapable of executing. That really was the bottom line.
So Investcorp after giving Maurizio free reign to put his vision into place,
they’re becoming very, very worried about the situation, and they are millions of dollars in the hole.
And they’re deciding they don’t wanna put any more money in because they think it’s just going down the drain.
I told him that it was in his best interest in order to keep and preserve the good relationship he had had with Investcorp
to go to Investcorp and say let’s choose a common new chief executive officer,
somebody who’s really gonna operate the business. And so, when I told him that unfortunately the reaction was extremely negative
because for him, I was telling him, which is the truth, that he was not capable to run the company.
And I felt the responsibility of telling him that in his own interest but sometimes your own interest
is perceived in a different way. He is begging them for time.
His assessment is that the turnaround needs a little more time for the customers
to really get the feeling for how Gucci’s changed. And at one point he’s begging them, “If you just give me six months,” he says,
“the Japanese market is going to realize that there’s a new Gucci and the wind will be back in our sales.”
Well, he never got that chance. Investcorp created a war room. They went after him with everything they could
and finally they were successful in kicking him out, and they bought his 50% in the company for $150 million
and then took it over entirely. The irony of this story was that actually
Maurizio was right. Six months after he was forced out by Investcorp,
the Japanese woke up to the new Gucci and started buying Gucci bags,
and the company started making money, hand over fist in a very quick time.
In March of 1995, one morning, broad daylight Maurizio is walking into the front door of his new offices,
a gunman comes into the doorway behind him and shoots him dead in cold blood.
The murder of Maurizio Gucci was a shocking event for the city and in addition to being shocking,
it was very sinister because there was no clear culprit. The prosecutor who was investigating the case
was looking into his business deals, he was looking into the family conflicts. He interviewed the cousins, he interviewed Patrizia
but he didn’t really see a clear family connection. And the case was just cold after two years
until because of a tipster one day, one morning at 5:30 in the morning the police raid Patrizia’s apartment on Corso Venezia
and arrest her for Maurizio’s murder. She had an obsession.
She wanted her husband dead and she spoke about it to everyone.
Often people are remembered for the wrong reasons and the glamor and maybe the interest
has more to do with the homicide. A wife appoints a killer, a hitman
and perhaps there is a risk that Maurizio will indeed be remembered as somebody
who was killed by his wife for no reason at all, or for very good reasons depending on where you sit.
But I think that Maurizio’s real legacy is that the Gucci brand has really been created
by three generations. As often as the case in some family businesses,
after the third generation, the family is not able to keep control of the company.
In this case, Maurizio not only lost control of the company but he also lost his life.
In the early stages of many luxury brands, the founder, the visionary, the original creative director,
they came almost to the end of their tenure, and they needed somebody else to take the brand on
in a different direction or a fresh direction. I think you could also say, with the Gucci brand,
that’s a hundred years old, over time, a brand like that needs to have fresh input,
and fresh eyes.
So even though Maurizio wasn’t ultimately successful in putting his vision in place,
he had actually done a lot of the work to set Gucci up for it’s next phase.
He hired an American retail executive, Dawn Mello, who was the president of Bergdorf Goodman, at the time,
and one of her main contributions was to hire, Tom Ford.
After Maurizio left, they started giving me more and more responsibility, and I became the Chief Operating Officer
of the company very quickly. And at that point, I really, de facto, I was running a company,
they basically asked me who I thought to be the Creative Director, and I felt very strongly to be Tom.
I remember very vividly, I drove up to Milan, and Tom was very, very young.
We had a meeting and I said Tom, I think we can really fix this company. So, I said look,
I’m not interested in interfering, I’m a businessman. I don’t pretend to be a creative person by any means,
so you’re in charge, you know, you do it, and let’s see where we go here.
He accepted and that’s really the beginning of the story.
He bought back the logo, and make it chic. He makes clothes that rock the world, and he put sex back where it belongs.
Here’s Tom Ford for Gucci. Thank you. I’d like to thank Vogue. Tom, you’re the greatest!
Thank You! Thank you. It’s difficult to understate the impact of
Tom Ford on Gucci. No, it’s not just about fashion, has purchased 5% of the company.
it’s also about real life. With his extraordinary style, innovation, and actually his sense of control,
this is one of the really really key success criteria. There has to be a vision,
and it has to be a very direct vision. Tom Ford has a very, very clear,
and strong idea about what Gucci could be, in terms of global ambition.
He made sure that his vision was totally controlled right across the customer experience.
From the advertising, every point of communication, product detail, and so on. Ford’s design power hit the fashion world
like a tidal wave. The winner is, And the winner is Tom Ford.
Thank you, thanks. So, the “Tom-Dom” era of Gucci
really was extraordinarily exciting, and it was clear from the very first menswear show,
actually, that Tom designed in Florence, that something had changed at Gucci, and there was a new Gucci in the air.
And sales took off immediately, and even though they were showing, kind of, more sexy styles on the runway,
they were still selling primarily black and brown handbags, but they really had lit a fire under this brand,
and the sales are doubling. So the sales went through the roof.
In 1995, our sales doubled. The success was just unbelievable.
Suddenly, really things looked up, and then at that point Investcorp wanted to go public
as fast as possible. So, the Gucci IPO was very anticipated,
but, what they realized was that, there was no fashion sector in the financial market,
so they actually had to train analysts in how the luxury market worked, and so,
Domenico’s being given presentation workshops, and skills. They are bringing analysts into the room,
and talking about how the industry works. They really pioneered the luxury sector
in the financial market. And other brands subsequently followed. But, it was really the Gucci IPO that set the stage.
The old Gucci name sure is attracting a lot of customers these days, on Main St. and Wall St.
The IPO of Gucci was even more successful than their wildest dreams. They debuted at 22 dollars,
and shot immediately up to 26 dollars. The offering was 14 times over subscribed,
and ended up making more than 2 billion dollars for Investcorp. Sales were up 113%, so we were delighted,
it was the fifth quarter in a row with which we double our sale. It proved to be a success story,
certainly from a financial perspective, for Investcorp. But also a huge success story, within the industry.
Once it was clear that the luxury markets was there to be developed,
and was there to be taken advantage of, all the players who were already in that market
had the competitive advantage of having seen it from within.
The risk was that somebody could take it over, and given this massive success. And it doesn’t matter how successful we are,
we’re a public company. There is always moment, in which the stock may go down. In 1997, Gucci was a
high performance machine, but a financial crisis hit Asia, putting Gucci, and the rest of the luxury goods market in peril.
Japan was the dominant force in the luxury market at the time. So, when there was this crisis in Asia,
the stock went down. And I think at that point was LVMH started purchasing shares of the company.
That really was my concern about the possibility of it being open to a takeover.
So, the real sort of rival on the market for Gucci was LVMH and Bernard Arnault,
who was kind of known as a corporate raider in the European luxury scene.
He had taken over Louis Vuitton, Moet Hennessy, and had other fashion brands, he had Dior.
We tried to build a large business with our partners with one criteria, the best quality,
and the most elitist product, in every line that we are selling throughout the world.
I got a call from Yves Carcelle, who is the CEO of Louis Vuitton,
and he called me, told me that LVMH
And at that time if you went above the 5% threshold, under the rule of the New York Stock Exchange,
you had to go public with it. So, that was really the beginning of the battle with LVMH.
And didn’t he say something about how it was a friendly acquisition? Yeah, he say it was very very friendly.
He say, well you know Arnault, Mr. Arnault, has a hell of a reputation, so I’m not sure how friendly this is gonna be.
Now were gonna mix a little money with a lot of style. From January through June, two retail titans
battle for control of fashion’s biggest prize, the House of Gucci.
So, once Arnault had thrown down the gauntlet for Gucci, Domenico De Sole realized
that he was in for a big fight, and he pulled in bankers and advisors,
and decided to stage a resistance, and his main concern was that he didn’t want Arnault
to be able to take over control of the company without offering a full and fair offer to all shareholders.
They are our number one competitor. We compete against them for customers.
We compete for talented people. This is a case of creeping control. They would like to control the company
without paying the full price. The contest between these two companies was getting more and more acrimonious,
and with the help of his advisors, De Sole put protection mechanism into place
through the issuing of employee shares, and that kept on diluting Arnault’s stake,
as he’s building up his stake in the company. But at at certain point, De Sole realizes,
that they aren’t going to be able to fend off Arnault forever. So, kind of in the ninth hour, Francois Pinault,
who runs PPR, which was a French retail group, comes in and offers to buy a stake in Gucci,
and becomes the white knight to help them fight off Arnault.
Francois was the most decisive man in the history of the universe. I talked to him for half an hour,
I told my story and I explained why we wanted to defend against Arnault.
De Sole drove a hard bargain, securing 3 billion for Gucci’s immediate growth.
It was the very deal Bernard Arnault rejected. So Francois Pinault does not only
want to be the white knight, but he has an even bigger idea, and so, he turns Yves Saint Laurent, 3 billion dollars
over to Tom and Dom, and he says, I want you, kind of, the dream team of fashion,
to buy up other brands, and turn Gucci into a multi brand group, that can rival Arnault and LVMH.
That was pretty brutal because, we were under pressure to do it, okay. So it was just a lot of work.
There were a lot of potential targets, and every time we tried to buy something, all of a sudden, LVMH would show up.
It was not an easy thing to do, so everything had to be done in great secrecy. It was a huge amount of pressure,
because it was on one end running the company, and on the other end acquiring all these companies,
and we acquired a lot of companies very fast.
To not only turn around Gucci, or keep the Gucci turn around going,
but to also then identify other talent, other brands, make them successful,
I mean, it became a huge endeavor. They were both working 24/7.
Tom was designing both Gucci and Yves Saint Laurent, and at the same time, they were trying to identify,
and then nurture these other designers. I was looking for major investment, and then Gucci got in touch and the rest is history.
They bought Alexander McQueen. They bought Stella McCartney. They bought Balenciaga.
Each brand was slightly different, you know, some were young designers that needed sort of, the help to grow and to mature.
Others were faded names that needed to be turned around. So they had a lot of children
that they were trying to raise, in this endeavor. There was the agreement that we would
run the company independently for 5 years, create this multi brand company, this large group of companies,
and then he would buy 100% of the share, at the price that had been set forth, at the time of the battle with LVMH.
So, five years after the initial white knight, Pinault, buys the full 100% of Gucci,
and, you know, Tom and Dom are in a situation, where they are essentially running this
publicly traded company as though it were their own. Until a time comes where Pinault is taking control,
and it’s time to renegotiate the contracts for Tom and Domenico,
and, they realized that they aren’t going to have the freedom to run Gucci, they way they had been,
and Tom and Dom announced that they were resigning from Gucci. Which is kind of a shock to the industry, at that time.
So at the end, Tom was clear, he was not gonna stay, and I worked with him so closely, you know,
was just like my younger brother, so at the end, we felt, and I felt,
that we had done our part, and it was time to move on with life.
The partnership between Tom and Domenico really became foundational. Not only for the Gucci business,
but for other luxury houses, that were starting to replicate the synergy between the creative and the management.
It became seen as kind of the essential component that you needed in that period to run
a successful luxury brand. Gucci is my legacy, so I love the company,
and I’m super happy about Gucci. Some people ask me this question, a lot.
No, I always wanted Gucci to do well. You know, I think it would have been catastrophic if Gucci didn’t do well after Tom and I left.
The genius, in many ways, of Gucci, is how it’s been able to reinvent itself,
and also frankly, reinvent the sex of its times.
If we think about how Gucci was rescued in the 1990s,
sex sells and that contemporary view on sex was a fundamentally important part of that.
Now we’ve seen Gucci really go ahead again. The last few years have been phenomenally successful.
Now why is that? Well, actually, they’ve expressed sex in a rather different way. A gender blending sex, a non-binary type of sex,
that has really really resonated with millennials, and consumers under the age of 35,
and that has been both very unusual, it’s been very challenging for luxury brands,
but, of course, Gucci have made it a truly runaway, and runway success.

 

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